Microsoft will offer Azure by the minute to take on Amazon’s cloud

Sometimes the key to getting bigger is making things smaller. At least that’s the idea behind Microsoft’s (S msft) plan to offer Windows Azure cloud resources by the minute with no mininum buy-in. That er, ups the ante in Microsoft’s bid to make Windows Azure a viable option to Amazon for companies that need to spin up (and down) virtual machines for variable workloads. Amazon(s amzn) charges by the hour, with price depending on whether the customer pre-pays for reserved instances, or buys on-demand or even spot instances on the open market.

Update: At the show, Microsoft Corporate VP Scott Guthrie also said that when an Azure user stops using a given VM, Microsoft will stop billing for that resource and that MSDN subscribers can now run some “select” MSDN licenses on Azure. Previously that software had to run on-premises.

Below is a pricing chart Microsoft provided for like instances from AWS, GCE and Azure:

Microsoft will also announce a broad timeline for the release of the next building blocks it hopes customers will use to build their own private clouds: Windows Server 2012 and System Center 2012 R2, both due later this year, and SQL Server 2014, due next year.

The company’s grand plan is for customers wanting private clouds to use those components, which mirror the technologies in Azure itself, and then be able to shift workloads between internal data centers and Microsoft-run Windows Azure at will. That vision is similar to what VMware is pitching with its new vCloud Hybrid Services. Both Microsoft and its partner/competitor VMware would like to be enterprise-friendly venues for cloud workloads that are now flowing to AWS.

“Our most direct competition is obviously AWS but at the same time, the framing of the market is important. We’re approaching it from an enterprise customer’s need for hybrid cloud,” Takeshi Numoto, corporate VP of Server and tools marketing for Microsoft told me last week.

The battle of the enterprise clouds heats up

Indeed, “hybrid cloud” deployment is seen as Amazon’s Achilles heel by competitors. While Amazon offers products like a storage gateway to forge ties between customer data centers and AWS, no Amazon cloud customer can run an AWS instance in house. Last year, AWS also launched a partnership with Eucalyptus to enable a sort of hybrid cloud deployment. Cloudscaling, an OpenStack player, says it will support AWS APIs to enable customers running its clouds to move workloads to and from AWS.

Microsoft will also tout market share its Hyper-V virtualization technology (which comes bundled with Windows Server) has made at the expense of VMware. Server virtualization is a key underpinning of cloud computing since it allows more and different workloads to be packed onto the same server.

IDC numbers show that Microsoft’s virtualization share grew to 27.5 percent in 2012 from 20.3 percent in 2008 while VMware’s share fell to 56.8 percent from 65.4 percent in that period. IDC analyst Al Gillen cautioned that the comparison is tricky since product configurations have changed. “While VMware’s share has been diluted down somewhat, the industry has grown well through this period, and VMware today holds a smaller share of what is now a much bigger market than was in 2008. So VMware is not losing volume, it’s losing market share. Those two are not one in the same when the market is growing,” Gillen said via email.

At any rate, the battle is on with Microsoft, VMware, along with HP(s hpq), IBM(s ibm), Red Hat(s rhat) and others all vying for corporate workloads. But let’s don’t kid ourselves, AWS is in that mix as well and remains the cloud to beat.

All of this will be subject to discussion at GigaOM’s Structure event in a few weeks where VMware CEO Pat Gelsinger, Microsoft Server and Tools President Satya Nadella, and Amazon CTO Werner Vogels will be on hand.

This report was updated at 7:44 a.m. PDT with additional information coming out of TechEd.